Correlation Between Microsoft and Corteva
Can any of the company-specific risk be diversified away by investing in both Microsoft and Corteva at the same time? Although using a correlation coefficient on its own may not help to predict future stock returns, this module helps to understand the diversifiable risk of combining Microsoft and Corteva into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between Microsoft and Corteva, you can compare the effects of market volatilities on Microsoft and Corteva and check how they will diversify away market risk if combined in the same portfolio for a given time horizon. You can also utilize pair trading strategies of matching a long position in Microsoft with a short position of Corteva. Check out your portfolio center. Please also check ongoing floating volatility patterns of Microsoft and Corteva.
Diversification Opportunities for Microsoft and Corteva
Significant diversification
The 3 months correlation between Microsoft and Corteva is 0.08. Overlapping area represents the amount of risk that can be diversified away by holding Microsoft and Corteva in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Corteva and Microsoft is a relative statistical measure of the degree to which these equity instruments tend to move together. The correlation coefficient measures the extent to which returns on Microsoft are associated (or correlated) with Corteva. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Corteva has no effect on the direction of Microsoft i.e., Microsoft and Corteva go up and down completely randomly.
Pair Corralation between Microsoft and Corteva
Given the investment horizon of 90 days Microsoft is expected to generate 0.81 times more return on investment than Corteva. However, Microsoft is 1.23 times less risky than Corteva. It trades about 0.08 of its potential returns per unit of risk. Corteva is currently generating about 0.01 per unit of risk. If you would invest 24,843 in Microsoft on September 2, 2024 and sell it today you would earn a total of 17,503 from holding Microsoft or generate 70.45% return on investment over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Together |
| Strength | Insignificant |
| Accuracy | 98.02% |
| Values | Daily Returns |
Microsoft vs. Corteva
Performance |
| Timeline |
| Microsoft |
| Corteva |
Microsoft and Corteva Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with Microsoft and Corteva
The main advantage of trading using opposite Microsoft and Corteva positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Microsoft position performs unexpectedly, Corteva can make up some of the losses. Pair trading also minimizes risk from directional movements in the market. For example, if an entire industry or sector drops because of unexpected headlines, the short position in Corteva will offset losses from the drop in Corteva's long position.| Microsoft vs. Palo Alto Networks | Microsoft vs. Uipath Inc | Microsoft vs. Block Inc | Microsoft vs. Adobe Systems Incorporated |
| Corteva vs. ATRYS HEALTH SA | Corteva vs. Charter Communications | Corteva vs. SHIP HEALTHCARE HLDGINC | Corteva vs. Spirent Communications plc |
Check out your portfolio center.Note that this page's information should be used as a complementary analysis to find the right mix of equity instruments to add to your existing portfolios or create a brand new portfolio. You can also try the Fundamental Analysis module to view fundamental data based on most recent published financial statements.
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